Voluntary employee benefits sold alongside Stakeholder pensions do not have to be subject to regulat...
Voluntary employee benefits sold alongside Stakeholder pensions do not have to be subject to regulation and employees will have no right to know what commission levels product providers may be paying to their employer, writes Debbie Harrison.
With many providers looking at Stakeholder as a loss-leader product in a competitive market, they appear to have a massive opportunity to make good their losses by cross-selling unregulated products on uncompetitive terms.
This gap in the regulations surrounding Stakeholder is being compounded by the fact that no regulatory authority as yet believes this falls within its remit.
Martin Thompson, commercial manager at Sedgwick Independent Financial Consultants, said: "When Stakeholder pension schemes are launched next April, providers will have an excellent opportunity to cross-sell their other insurance and investment products to members of these schemes. Just because the Stakeholder scheme is low cost and must offer fair terms, employees should not assume other products will offer equally good value."
Employers are already used to providing voluntary benefits to employees, using their bulk negotiating power to produce enhanced terms, from everything from insurance to cheap holidays.
The problem with so-called worksite marketing, is the role of the employer, which represents a wild card in the regulatory system. Providers are regulated, or at least governed, by a code of conduct and answerable to the Department of Trade and Industry. However, employers who endorse these products and can receive a sales commission are not regulated or governed by any such code.
There are no rules that require employers to screen the companies they welcome into the workplace or permit to advertise within the company.
A spokesman for the FSA said it was up to the employee to decide whether a particular product was suitable for them. He added that concerns about insurance products could be referred to the Insurance Ombudsman.
David Cresswell, spokesman for the Ombudsman pointed out that as the contracts would be between the employee and the provider, the Ombudsman has no jurisdiction over the employer.
Catherine Nicoll, head of communications at the General Insurance Standards Council, described this as, "a gap in the floor boards." She added that with its general insurance remit, the body could probably get involved with PMI cases but not with those for income protection or critical illness.
John Gorham, policy manager at the GISC, added: "The GISC is looking at the role of the employer as introducer. Where the employer is promoting insurance products like PMI as their own scheme or where they are co-branded with the provider, this does fall within the GISC's rulebook."
He said that it is the trust of the employee that is at stake. "We believe that the employee who buys through a voluntary scheme, or any other type of affinity group marketing, should have the same protection in terms of product knowledge as the consumer who buys direct."
